Public Bill Committee

[Mr. Peter Atkinson in the Chair]

Clause 27

Adjustment of charges to help disadvantaged groups of customers

Question (19 January) again proposed, That the clause stand part of the Bill.

Simon Hughes: On a point of order, Mr. Atkinson. May we take jackets off?

Peter Atkinson: You may.

Simon Hughes: I propose to add only a word or two to those spoken by the hon. Member for Wealden on Tuesday. We have the same general concern. The clause appears to be very broadly drawn, giving significant discretion to Ministers. Therefore, the sensible thing is for me, like the hon. Member for Wealden, to listen to the Under-Secretarys response. However, we are very keen for the Government to undertake to consider the objections from the Opposition after the Committee stage and before Report, as they have done for other matters. I am very happy, as I am sure the hon. Member for Wealden and others would be, to meet after the Committee stage to discuss disputed matters that may be capable of resolution or progress. I hope, therefore, that the Under-Secretary will take note of the significant concern about the clause. Clause 27 is the only remaining clause that presents significant concern for the Opposition.

David Kidney: On Thursday, I promised to write to all Committee members with some statistics that I presented to the Committee on that day. The letter is in the process of being written. I point out on the record that when I said a figure of 40 per cent., I should have said 43 per cent., and when I gave a figure of 870,000, I should have said 837,000.

Phil Willis: Disgraceful! [Laughter.]

David Kidney: I have not finished my mea culpa yet. Apparently, my presentation of the tables was also infelicitous and the correct interpretation of them will be set out in the letter, to put me and hon. Members straight. I apologise for any error that I made in my presentation.
Clause 27 will allow the Secretary of State to devise a scheme that will adjust gas and/or electricity charges if he considers that a group of customers of a particular energy supplier is being treated on less favourable terms than another group of customers. The Secretary of State will be able to define which group of customers the scheme applies towhether gas, electricity or dual fuel, or a sub-group of those customersas well as which charges are covered by the scheme and how they will be calculated. The clause will ensure that the Secretary of State has the power to address the type of unfair discrimination, identified by Ofgems probe into energy markets, that exists in respect of the charges that suppliers imposed on electricity-only customers and dual fuel customers.
On Tuesday, my hon. Friend the Minister of State and I endured many hours of debate when Opposition Members criticised the effectiveness of the regulator Ofgem and said that the Government should do more. Now we have come to a clause where the Government propose to do more, and Opposition Members still criticise. But then, whoever said that Opposition Members had to be consistent in their criticisms?

Charles Hendry: I was not one of those who led those criticisms. The issue at stake is that nobody knows when the Minister will use his powers, or in what circumstances. What we need is clarity. There needs to be an absolute degree of certainty among those working in the industry about whether certain things will be acceptable to either Ofgem or the Minister. There is a broad range of powers here, but without the detail to understand exactly what is intended.

David Kidney: The powers are largely based on existing powers found in sections 43A and 43B of the Electricity Act 1989 and sections 41A and 41B of the Gas Act 1986; they replace and expand on those powers. In each of those sections, which have existed since the Utilities Act 2000, the word considers appears in the first subsection, as here in the present draft. What is new in the clause appears in subsection (5), where the words
(c) electricity and gas customers
are added to the categories that the Secretary of State can take into account to discover whether there are disadvantaged customers. That precisely covers the point, which I mentioned in my evidence to the Committee, of a potential lacuna where people are dual fuel users with the same supplier.
Subsection (7) caused some concern among Members, particularly the phrase assumptions and calculations. That is new because of the addition of dual fuel customers; it would not always be possible to compare directly the charges being made between groups of customers because of the interaction of their gas and electricity supply. That is why the widening is required.
The change will ensure that the Secretary of State has a full suite of powers to address price discrimination between electricity and/or gas customers. It will mean that the Secretary of State will be able to address cases where suppliers have cross-subsidised their gas businesses from their electricity businesses, as a result of which electricity-only customers have been charged more than can be objectively justified.
The power is intended as a reserve power. Ofgem has already introduced new licence conditions to prohibit the kind of discrimination previously described, and we are confident that this will mean that such practices will not be repeated in future. The clause is still necessary to ensure that the Secretary of State has powers to intervene should it become necessaryif, for example, Ofgem is unable to obtain the necessary level of agreement from licence holders to allow it to introduce or amend licence conditions to prevent future discrimination.
The hon. Member for Wealden said that Ofgem does not have the same relaxations, as he regarded them, as the Secretary of State has here. Given that it is intended that the Secretary of State should step in, usually after Ofgem has failed to take the necessary action, having exercised its powers to investigate, the things that the hon. Gentleman believes should be done will already have been done by Ofgem.
I want to address the issue around subsection (7) and the word assumptions. First, it is restricted by its link to the words and calculations. It is a formula to enable the Secretary of State to make the necessary comparisons, to see whether one group is disadvantaged compared with another. It is also restricted by the opening words of the subsection: that it is
for the purposes of this section
and no other purposes, that this ability of the Secretary of State exists.
More widely, under the Gas Act 1986 and the Electricity Act 1989, the Secretary of State has a duty to have regard to best regulatory practice in carrying out his functions under the legislation. The duty requires him to have regard to the principles under which regulatory activity should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed. Subsections (8) and (9) of clause 27 make it clear that the carrying out of the Secretary of States functions under the clause are covered by the better regulation duty.
Clause 29 requires the Secretary of State to give advance notice of any proposals to make regulations under these powers and consider any representations or objections raised with him. In line with the better regulation duty, the Secretary of State would consult fully and complete an impact assessment before any scheme to adjust charges could come into force. When Sarah Harrison of Ofgem gave evidence on the point in answer to a question from me, she made it clear that it was helpful to Ofgem, in carrying out its duties in regulating the supplier companies, that this reserve power should exist with the Secretary of State.
As far as the suppliers are concerned, it makes sense for them to comply with Ofgem in changing their licence conditions; if they did not, they would know that the Secretary of State would step in with something much more effective. In that sense, they would prefer to cling to nurse for fear of something worse.

Simon Hughes: That was a good coda.
We discussed the interrelationship between Ofgem and the Minister earlier in Committee. In defence of those of us who were critical of Ofgem, I should say that my criticism was not that there should not be a Government rolethat has never been the criticism. In opposition, one rightly criticises and probes to check that the powers that a Bill gives to Ministers or regulators are clear and that we know what we are getting. That was the burden of our song. We do not step back from the points that we made last week on the inappropriate inclusion of Ofgem as an alternative in an earlier part of the Bill. Ministerial powers can override and direct, but we need to know in advance their extent, breadth and import, and to have as few variables as possible.

Charles Hendry: I am grateful to the Minister for his response. I remain concerned that this is a sloppy bit of the Bill. We have to assess legislation against criteria to see whether it is appropriate. The first criterion is need, and that has not been proven in the Ministers argument so far. He talked about an existing power in other areas under the 2000 Act and explained that it has never been used, so, as I say, the need for the power is not clear.
The second criterion is urgency; we were told by the Minister of State that only issues that were pressing were going to be incorporated in the Bill, and we see no reason for urgency on this matter. I think that Ofgem, in evidence, said that how much should be taken forward was not its choice, that it was not appropriate that it should have a view on the powers and that the Government should decide. Ofgem did not sense the urgency.
Thirdly, is the power appropriate? That is not yet proven. The Under-Secretary has done his best to defend his case, but we have significant doubts about not only the powers that will be taken, butmore importantlythe potential scope for confusion. He has an unclear set of powers and it is not evident how those relate to the powers that Ofgem has. Nevertheless, the clause is perhaps better discussed in another place, where we have a raft of lawyers. Their lordships may wish to return to it in due course.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Peter Atkinson: In a spirit of optimism I think that it may be convenient to consider clauses 28 to 37 together. Mr. Hughes, do you have a problem with that?

Simon Hughes: No.

Clauses 28 to 37 ordered to stand part of the Bill.

New Clause 1

Carbon emissions performance standard
(1) The Secretary of State shall make provision by regulations for a carbon emissions performance standard to set the maximum level of carbon dioxide that may be emitted for each unit of output by any new coal fired electricity generating station.
(2) The emissions performance standard shall come into effect immediately on passage of this Act and will be progressively lowered so that new coal fired power stations will produce no carbon emissions from 2020..(Simon Hughes.)

Brought up, and read the First time.

Simon Hughes: I beg to move, That the clause be read a Second time.

Peter Atkinson: With this it will be convenient to discuss the following: New clause 2Emissions performance standard
(1) The Secretary of State may by regulation introduce an Emissions Performance Standard to apply to all electricity generation plants.
(2) In this section Emission Performance Standard means a restriction on the amount of carbon dioxide that electricity generation plants are permitted to emit..
New clause 5Carbon emissions performance standard
(1) The Secretary of State shall make provision by regulations or otherwise for a carbon emissions performance standard to set the maximum level or levels of carbon dioxide that may be emitted per unit of output by all individual generating stations.
(2) The Secretary of State shall review the emissions performance standard established under section (1) no less frequently than every three years.
(3) In establishing the level or levels of the carbon dioxide emissions performance standard in section (1), and in carrying out the review required in section (2), the Secretary of State must
(a) take into account the most up-to-date scientific knowledge about climate change;
(b) obtain and take into account the advice of the Committee on Climate Change, particularly in relation to carbon budgets, medium and long-term emission reduction targets, and future emissions from the electricity generating sector.
(4) The Secretary of State must introduce the standard under section (1) no later than 12 months from the date on which this Act is passed..

Simon Hughes: I hope that we have helped you to start your day in good humour, Mr. Atkinson, and that you are able to continue your birthday in a good way, following the dinner that you went to in the Speakers House with another birthday boy as part of the Chairmans Panel on Tuesday.
The debate is about emissions performance standards. To which Minister should I direct my comments? [Interruption.] I thank the Minister of State for raising her hand. The subject has significant importance not only in the UK but across the EU and globally. It is not new; how we deal with carbon emissions and regulate them has often been debated generally and specifically in the context of coal-fired power stations. I am conscious that last year there was a debate in Westminster Hall on St. Patricks day.
Coincidentally, the Secretary of State for Energy and Climate Change made a statement on St Georges day, which was responded to by my hon. Friend the Member for Cheltenham (Martin Horwood) as I was abroad.
We set out our view then, and have held to it, that industry must know that the next generation of coal-fired power stations must have a system in place from the beginning that captures the carbon and so does not continue the dangerous effects of carbon emissions. The qualified retrofit option is not good enough either in protecting our planet from emissions or in giving certainty to the people developing the next generation of coal-fired power stations. We have made it clear that we do not believe that we should get rid of coal in this country as a contributor to our power supplies, but it needs to be produced and used in a way that does not create the harm it has in the past.
My right hon. Friend the Member for Ross, Skye and Lochaber (Mr. Kennedy) introduced a private Members Bill on this subject on 3 July. It had its Second Reading on that day and the Under-Secretary of State for Energy and Climate Change, the hon. Member for Stafford, responded. The burden of his song was that it was a premature proposal for three reasons. First, the Government had indicated that there would be an Energy Bill in the coming Session. He was right about that and here we are. Secondly, in the background there was ever-changing technology, proposals and other matters. That is obviously true. Thirdly, there was a consultation going on at that very time, so it would be premature not to await the response to it.
The consultation has happened. The response was published by the Department in November, so we are now past that. The implicit agreement between my right hon. Friend and the Under-Secretary was that it would be appropriate to come back to the matter once that process had been completed.

David Kidney: Very reasonable.

Simon Hughes: Indeed. We are coming back to the matter at the first available opportunity, obviously with the knowledge of my right hon. Friend, and keen to pursue the matter.
Before the end of last year there was also the report of the estimable Committee on Climate Change, Meeting Carbon Budgets - the need for a step change, which we all take very seriously and value very greatly. By any criterion Lord Turner and his colleagues do an excellent job. They have made a significant contribution to the issue. On page 134 of the report, talking about whether we can only rely on the carbon price and so on, they say:
Given our concerns we therefore recommend that:
Whether CCS is deemed proven should not be judged only on the basis of the carbon price. Rather it should be considered in the wider context of power sector decarbonisation required both in the UK and internationally, and on the basis of UK and international evidence.
To the extent that retrofit might be considered desirable in this context but would require additional support over and above what is likely to be provided by the carbon price, investors should be given comfort now that a mechanism would be introduced to provide this support.
Such a mechanism should be introduced no later than 2016 to support roll-out once the first demonstration plants become operational. Some decisions on regulation and financing structure could be made in advance of this date.
The Government should make it absolutely clear now that whether or not CCS can be deemed economically viable any conventional coal plant still operating unabated beyond the early 2020s would only generate for a very limited number of hours. Such a statement should be complemented by a review (e.g. in 2020) to determine the precise level and timing of such a limit.
That is followed by a box entitled Potential power market interventions, which describes three such interventions. The first proposal, entitled Measures to strengthen the carbon price signal, is to extend the exemption from the climate change levy to all new low-carbon generators. It also suggests a second option of a carbon price underpin. The second proposal, entitled Measures to provide confidence over the price received by low-carbon generation, suggests feed-in tariffs for low-carbon technologies and tenders for low-carbon capacity. The final proposal, under the heading Measures to ensure investment in low-carbon capacity, suggests an emissions performance standard or a low-carbon obligation.
I want to focus on the emissions performance standard. The report states:
An emissions performance standard would entail regulation to specify a maximum emissions intensity (g/kWh) of generation. This could be introduced at firm or installation level.
We have had debates about what would be appropriate and the industry has given evidence. It may be much easier to introduce the standard at installation level than across all the plant run by a particular company or consortium. I am willing to have that debate. I was grateful to the Minister of State for her response to my question about whether an emissions performance standard would be legal in European law and, therefore, in British law. New clause 5, tabled by colleagues led by the hon. Member for Nottingham, South (Alan Simpson), also argues for an emissions performance standard, and the Conservative Front-Bench team have also tabled a new clause.
The difference between the three options available is that new clause 1, tabled by my hon. Friends and me, is considerably stronger. It states:
The Secretary of State shall make provision by regulations for a carbon emissions performance standard to set the maximum level of carbon dioxide that may be emitted for each unit of output by any new coal fired electricity generating station,
and that that
shall come into effect immediately on passage of this Act and will be progressively lowered so that new coal fired power stations will produce no carbon emissions from 2020.
That is a clear position. [Interruption.] Ministers may disagree, but it is clear and it gives a clear indication to the industry a decade in advance, so there is no lack of notice. One of the Ministers reminded us in an earlier debate that the Act will be enacted two months after its passage. We believe that the emissions performance standard should be introduced when the Act is enacted so that it can come into effect this year.
Next in effectiveness, though much less effective and, in our view, not effective enough, is new clause 5, tabled by six Labour colleagues led by the hon. Member for Nottingham, South. The difference between it and our new clause is that it offers no provision as to when the emissions performance standard would come into operation. It begins:
The Secretary of State shall make provision...to set the maximum level or levels of carbon dioxide that may be emitted.
It goes on to say that the standard should be reviewed
no less frequently than every three years.
It then sets out the issues that the review should take into account, including the most up-to-date scientific knowledge and the advice of the Committee on Climate Change,
particularly in relation to carbon budgets, medium and long-term emission reduction targets, and future emissions from the electricity generating sector.
The new clause also proposes that the standard must be introduced
no later than 12 months from the date on which this Act is passed.
It would start next year and would be reviewed every three years, but the new clause does not have a specific date for implementation.

Brian Binley: Does not subsection 3(a) in new clause 5 sum up the reason there is a real need for flexibility? It says that the Secretary of State must
take into account the most up-to-date scientific knowledge about climate change.
Over the last six months there has been considerable doubt about the impact of climate change, particularly the assumption that was made in the inter-parliamentary computer model to the effect that rising amounts of CO2 produced a similar rising amount of heat within the atmosphere. That seems to be in some doubt.

Alan Whitehead: No.

Brian Binley: Let me continue. The point is that scientific evidence is in some doubt. We need some flexibility and that is why I welcome the new clause tabled by my hon. Friend the Member for Tunbridge Wells (Greg Clark), rather than the firm new clause tabled by the Liberal Democrats.

Simon Hughes: The hon. Gentleman is beginning to address the new clause tabled by his hon. Friends which I have not addressed yet. It is the weakest of them all. He has put his position on the record. He supports the weakest proposition. To put it bluntly, of course there are climate change deniers. There are more of them, as far as I know, in his party than in any of the other three parties represented in this Committee. There appear to be a significant number both in the current parliamentary Conservative party and among those selected to be Conservative prospective parliamentary candidates.
Indeed, it was distressing to discoverfrom research done not by us but by the Conservative partythat of all the issues that were thought to be important by its prospective parliamentary candidates at the bottom of the list were two things: social housing and climate change. That does not suggest that great new, radical, environmental

Peter Atkinson: Order.

David Kidney: We are enjoying this.

Peter Atkinson: I know. I am sorry to spoil the Committees fun, but this is really getting rather wide of new clause 1.

Simon Hughes: I was just warming up, Mr. Atkinson. I have been waiting to make this speech for at least three days. But I have other opportunities in the grid.
My hon. Friend the Member for Harrogate and Knaresborough, from both his personal knowledge and his knowledge as Chairman of the Science and Technology Committee, may wish to tell us that there is not increasing evidence to suggest that climate change is uncertain. That is certainly not the advice given to the Government. It is certainly not the Governments view. To their credit they are very clear about this issue. Of course, people can naively think that because we are having a cold winter it must mean that the evidence is different.
All the burden of scientific evidence, both from the Intergovernmental Panel on Climate ChangeI have heard its chairman speakand our Committee on Climate Changewe have heard their chairman and members speakis that the evidence is clear. I also take the view in politics that the precautionary principle is a good one and we should seek to anticipate things that are dangerous and not wait until after the event. I understand the position of the hon. Member for Northampton, South. He is entitled to his position. I do not think that it is supported by the science and this is a matter to which we will no doubt return. I will observe your polite request, Mr. Atkinson, not to stray too far into that debate now.
Having put two of the positions, I should like, to be fair, to put on the record the third, which is the position of the Conservative party as set out in new clause 2. Obviously the hon. Member for Wealden will speak to his own new clause in a minute but it is only affair that I address it. It states:
The Secretary of State may by regulation introduce an Emissions Performance Standard.
It then defines it. It does not say that the Secretary of State shall do so, and it does not say when. It does not say what the criteria will be and so on. I think that the hon. Gentleman will accept that it leaves an option, but it is simply that. My hon. Friend the Member for Harrogate and Knaresborough and I think that that needs to be tougher and clearer from the beginning.
There is, however, one major issue that I want to raise, as the Minister of State may suspect. It concerns the legal context of these matters, which is why I have questioned her in the past. Correspondence between her Department and the European Commission on this matter has come into my possession. I have a letter dated 16 June, written by her Department and sent to Mr. Jos Delbeke, the deputy director general for climate change and air, DG ENV 1, at the Commission, on the subject of a proposed UK framework for the development of coal. That was a perfectly courteous letter explaining the Governments position after the announcement made by the Secretary of State in April. I will not set it out in detail, but it starts by saying:
We are writing to update you on progress following recent announcements by the UK government in Budget 2009 and subsequently on proposals for new measures on coal and CCS.
I also have the reply to that letter, which I will put on the record. It is a short letter from Mr. Jos Delbeke, who is a long-standing European civil servant. The letter is headed: Proposed UK framework for the development of clean coal. It states:
Thank you for your letter of 16 June 2009, in which you lay out elements of the proposed UK framework for the development of clean coal, comprising, inter alia, the following measures:
1. Requiring any new coal power station in England and Wales to demonstrate CCS on at least 300MW net (around 400MTW gross) of its capacity; as is laid out in Chapter 4 Section 1 of the Consultation paper on the framework issued on 17 June 2009, the intention is to implement this requirement through the planning legislation.
2. Requiring these power stations to retrofit CCS to their full capacity once CCS has been technically and economically proven, and new power stations to then be fully CCS from the outset;
3. Exploring options that would deliver emission reductions from coal power stations should CCS not be proven as quickly as expected. With regard to the requirement under L, Chapter 4 of the Consultation Paper on the proposed UK framework, issued on 17 June 2009, lays out that the requirement should be implemented in the first place through the planning legislation. Amongst other options to ensure the monitoring and enforcement of this requirement, it is proposed to introduce emission performance standards or caps for individual plants through the Environment Agency's Environmental Permitting regime.
You have asked for DG ENVs views on these proposals. As you know, Article 9(3), 3rd subparagraph of Directive 2008/1/EC concerning integrated pollution prevention and control stipulates that:
Where emissions of a greenhouse gas from an installation are specified in Annex I to Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community (1) in relation to an activity carried out in that installation, the permit shall not include an emission limit value for direct emissions of that gas unless it is necessary to ensure that no significant local pollution is caused.
DG ENV takes the view that this would rule out the introduction of any emission performance standard, cap or limit value for direct emissions of CO2 falling under the definition of emission limit value set out in Directive 2008/1/EC in the permits to operate installations covered by Directives 2008/1/EC and 2003/87/EC. I am looking forward to a continued dialogue on these issues in the coming months.
Jos Delbeke
The key point, as the Minister will have heard in the penultimate paragraph, is that
DG ENV takes the view that this would rule out the introduction of any emission performance standard, cap or limit value for direct emissions.
Unsurprisingly, I have some questions for the Minister. Given that the reply is dated September, why did the Government not refer to the letter when they published their coal policy on 9 November? What steps have the Government taken since 9 November to ensure that their proposed policy for coal will be exactly in line with the recommendations of the Committee on Climate Change?
Is it enough, given the correspondence that I have cited, for the UK to rely on its own legal advice? The advice may be different from that given to and by the Commission. What communication has there been between the lawyers here and in Brussels? If the Governments legal advice is wrong, it would still be possible, according to the Commissions letter, to use the UK planning regime to do something about the situation before it is too late. I accept that it would be possible to plan in advance and say that emissions above a certain amount will not be allowed as part of the planning condition.
I understand from the Under-Secretarys response to the debate on the private Members Bill in July, and from other dialogue, that the Governments contingency plan for an EPS option would be for a CO2 emissions performance standard by way of a plant-level cap. If that plan is found to be illegal under European Union law, there would clearly be no way of controlling or reducing the CO2 emissions from any coal power station in the UK once it had been granted consent. The Committee will therefore understand the concern of my hon. Friend the Member for Harrogate and Knaresborough and I about the danger that people would be trying to close the stable door after the horse had well and truly bolted.
That would also mean that the UK would not be able to follow the recommendations of the Committee on Climate Change, which apply to both new and existing coal power stations. A new station, such as the proposed new plant in Kingsnorth, could emit 8 million tonnes of CO2 a year indefinitely. Without an emissions performance standard, and if the Kingsnorth CCS project fails to meet the targets, the obligations and duties created by the Climate Change Act, which this country, to our credit, passed in 2008, would be rendered sterile and meaningless. E.ON has said, on the record, that if there is to be an emissions performance standard, it wants to know what it will be at the outset so that it can make an investment decision. The Government, however, have not done that. Why have they not made that indication? We know E.ONs current position in the market and in relation to Kingsnorth.
It seems to us that a rolling review in 2018the position described by Ministers the other daywith the threat of an uncertain regulation thereafter, creates more questions and problems than it answers. That is our criticism of the new clause tabled by the hon. Member for Nottingham, South. Although it has the support of some reputable voluntary sector organisations, I think that they are misguided about the new clauses logic. After extensive public consultation, we still do not know what the appropriate conditions for any new coal power stations will be. That is hopeless if we are trying to plan the future of an industry into the decade beyond this one.
The rolling review is also a hanging axe that will deter much-needed investment in new coal and CCS. That is clearly undesirableI could be stronger about itespecially when we now know that it is considered technically possible for new, commercial coal power stations, such as the Powerfuel 900 MW project at Hatfield, which has been supported by the European Union, to capture 90 per cent. of CO2 emissions from the outset. We now know the EUs view and that it had indicated it to the Government. Apart from the questions about why we were not told of the Brussels position earlier and why it is only coming to light now, is it the caseI hope it is, because, as the Minister of State knows, I respect her greatlythat the Government have been trying to ride two horses? On the one hand, are they creating the impression here that they are being tough and determined about the issue, knowing over the past few months that the European Commission would not allow them to carry out their proposed policy; and, on the other hand, have they been unwilling to stand up and take on the Commissions position, which needs to be challenged, on the issue? Ultimately, this might have to be taken to the courts. We take the view that this is sufficiently important to be taken, if necessary, to the European Court, so that the dispute between a member statethe United Kingdomand the Commission can be resolved.
If the UK is to take the lead in Europeand I commend the Government for the intentionthen it is necessary to take on the civil service or the European Commission on this issue. I am an enthusiastic European, but that does not mean I think every single decision or view the EC takes is correct. I have never taken the view that there ought not to be robust participation in the processes by member states.
The legal problem of how to regulate CO2 emissions from coal power stations in Britain must be resolved publicly, positively, urgently and ideallyI see no other opportunity before the general electionby this House in this Energy Bill, before consent is granted to any new coal power station. This is not meant to be provocative, but we face a general election and none of us knows the outcome. It is theoretically possible that there could be a Conservative Government, who will not be as tough on these things, in my view, as the present Government have been or intend to be. I look to the Minister and her colleagues to help those of us who have had a lifetime of concern on these matters, to take an opportunity that may not come again before the general election. In certain outcomes of the general election, the opportunity to succeed may not come at all in the House of Commons, even though the House of Lords will remain a balanced place, without any party having an overall majority.

Phil Willis: My hon. Friend makes an incredibly powerful and important point about the juxtaposition of UK law and European law. In the debate on the Constitutional Reform and Governance Bill earlier this week, the Conservative Front-Bench team proposed an amendment that, following a Conservative Government coming to power in May, any future change in competence in terms of European law would result in a referendum in the UK. That is their position. In that debate I sought a cast-iron guarantee; to be fair, the Conservative spokesman gave a cast-iron guarantee.

Peter Atkinson: Order. I remind you that this is an intervention, not a speech.

Phil Willis: I apologise, Mr. Atkinson. It is a very important point. Does my hon. Friend agree that in those circumstances, not only may we have a challenge in the European Court over this, which could take three to five years, but we may also have a referendum in the UK, which could put back the whole process for a decade?

Simon Hughes: I agree. Although I was not in the Chamber, I was able to see my hon. Friends intervention as I followed that part of the debate. I am keen to persuade the Government of what needs to be done on this issue. We need to amend the Energy Bill, because it is the last opportunity, to include a clause providing for emissions performance standards. That is consistent with the Government view and with what the Under-Secretary indicated might be possible when he replied to my right hon. Friend the Member for Ross, Skye and Lochaber in July. It is consistent with statements made by the Secretary of State and the Minister of State, both in the House and written answers. If we put into the Bill an emissions performance standard amendment or new clause, we would take the initiative and then it would be up to the European Commission if it wanted to take us on. We would get on with that and the matter would be resolved speedily, and not hang over everybodys head as an unresolved matter in the way that my hon. Friend indicates.
Our view, on these benches, is that new clause 1 is the only new clause exactly in line with what the Committee on Climate Change has recommended. I defer to its wisdom and expertise, as it is the best source of guidance in the UK and was specifically set up, with all-party agreement, to provide that guidance.
I shall make one last point. I am conscious that this is the month after the difficulties of Copenhagen and the Copenhagen accord, and, by 31 January, countries have to lodge the steps that they are taking as annex 1 countries. I unequivocally applaud the Government for the efforts taken, only the other day, at the Council of MinistersI think that it was the Secretary of Stateto get the EU to be more robust about emissions. I have had personal conversations with the Secretary of State and have encouraged him to be robust. I know that that was in his mind. I am grateful and I hope that his efforts deliver and that Baroness Ashton can assist that delivery in her new role, because it is a foreign affairs as much as an energy and environmental matter.
We have an opportunity for the Government to show, not only in Council of Ministers meetings in Spain, as that one was, or elsewhere, but also at home in their legislative programme, that they are determined to do something about carbon emissions. If we want the coal industry to thrive, and to let investors know what to expect in the future and to have a proper lead-time for investment planners, financiers and others to know what they are working towards, we need to tell them the score by the time that the Bill is on the statute book.
I hope that we will continue to take the lead after a disappointing conference in Copenhagen. I know that Ministers want to be in the lead position. Here is an opportunity for us to take political responsibility. If we do not amend the Bill, either in Committee or on Report, and introduce emissions performance standards, I fear that we will once more be accused of letting the public down and ducking a difficult decision. We are happy to work on the wording; we are not precious about it. I know the difficulties. I am clear that if we are in government, or sharing government, after the election, we will be promoting the measure and will come back to the issue with the objective of introducing emissions performance standards. That is our aspiration. However, it is always better to grasp the opportunity when it presents itself. We have a Bill; now is the opportunity and I urge the Government to take it.

Charles Hendry: We should start by recognising that most people in this room are keen to have an emissions performance standard. Some aspects of the hon. Gentlemans speech were almost seeking to divide us into different categories, but, overwhelmingly, what binds us together is the desire to see an emissions performance standard introduced and formulated in a way that is right for Britain. That is his partys policy and my partys policy, and Back Benchers share that desire, as, I suspect from her comments and the campaigns that she has run, does the Minister of State, even if she cannot elucidate those views as openly as she might wish.
The background to the new clauses is that we all recognise that new coal plant must have carbon capture fitted to it from the outset and that if we are to secure the investment that we want in clean coal, investors need to know the framework under which they investing. An emissions performance standard is not only an environmental issue but an investment issue. It sets the framework within which company boards can say, We understand what is expected of us and what we need to do to meet deadlines to comply with the law. This, therefore, is a positive measure and will facilitate new investment if formulated in the right way.
Emissions from a coal-fired power station without carbon capture are around 900 grams of CO2 per kilowatt-hour, which is much higher than the emissions from a gas plant. If carbon capture and storage is introduced on one quarter of the plant, it will bring emissions down to 650-700 grams of CO2 per kilowatt-hour and can bring it down dramatically over time.
I am concerned with the absolutist nature of new clause 1. It says that
new coal fired power stations will produce no carbon emissions from 2020.
First, there is a debate about what is meant by new. Does that mean plant built from 2020 or plant built from when the Bill comes into force, which is what the new clause refers to? There is potentially a retrospective element, which companies might find hard to accommodate.
There is, however, also a practical consideration. The goal of producing no emissions whatever will be almost unattainable. The people with the greatest expertise to whom I have spoken say that a plant with 100 per cent. carbon capture and storage on a post-combustion basis would probably get its emissions down to about 50 grams per kilowatt-hour and perhaps slightly less, but it would certainly not be zero.
There will also be times when the emissions are higher. For example, about a third of the output of a plant will be needed to run the CCS facility. There will be a period when the plant is starting up and it does not have the power available to run the CCS facility. In those opening hours, there will be high levels of emissions until the plant is running at full capacity. Under the proposals made by the hon. Member for North Southwark and Bermondsey that would be illegal.
There will also be periods when, because of a very tight winter situation, we will need every element of our generating capacity to work at full tilt. For that period, and looking at the issue in terms of trying to control emissions on an annual basis, there would be a case for saying, We dont want you to run your CCS for a few hours, because we need the extra capacity to keep the lights on. Under the new clause, however, that would be illegal, and the lights would have to go off, because the CCS facilities would have to be working at all times to capture 100 per cent. of emissions.
There are therefore practical issues that create a fundamental flaw, even though I agree with the direction of travel. One has to imagine what will happen in boardrooms in Essen, Spain and elsewhere, when executives sit down to decide whether they want to invest in new clean-coal plant in Britain. They will wonder whether they can, realistically, be absolutely certain that they will be able to capture all the emissions within a decade. They will say, We dont believe we can commit to that yet, because the technology is not in place. When we have an urgent need for new investment in new capacity, the boards of companies based overseas will say that there are better opportunities elsewhere and they will turn their minds away from the UK.
That is why it is better to go for a permissive approach that gives the Secretary of State powers to introduce an emissions performance standard. That should be based on the science and on discussions with business and industry so that we understand what is realistic from their perspective. We do not want to kill the goose that lays the golden eggs.
It would be good for the emissions side of things to have a completely perfect emissions performance standard that could be met because no new plant was built, but that would be catastrophic for our security of energy supply. A balance has to be struck in these discussions between security of supply and carbon emissions. The hon. Gentlemans new clause simply falls on the wrong side of that balance.
Our new clause 2 is the best proposal because it is the loosest, and the direction of travel is clear. My colleagues and I have committed ourselves to introducing an emissions performance standard if we are given the chance to do so, but the detail should be finalised based on the science and the industrial evidence. If that is not acceptable, we are willing to look at the new clause tabled by a number of Labour Back Benchers, but for the reasons that I have set out the hon. Gentlemans new clause for the Liberal Democrats cannot balance our climate change and security of supply objectives.

Michael Weir: I do not want to repeat what has been said, but I want to make a few brief points. In the Bill, we are setting up the levy, which will put a considerable amount of money into CCS. It will be reasonable for those who pay the bill to know what they are getting for their money and that there will be a reduction in emissions.
The Governments framework for the development of coal says that they wish to see all new coal-fired plants fitted with 100 per cent. carbon capture and storage by 2025, but they have accepted that measures could be introduced in the 2020s to address the issue of emissions from new coal plants should there be difficulties with the technology. The difficulty is that if we have new coal plants in the meantime that are not fitted with CCS, the Government could come under great pressure to back off from the emissions standard at that time, for the simple reason that we could end up losing those plants and having a gap in electricity supplies. I think we need to be careful of that, and to address that matter now by making it clear that there will be an emissions standard that companies will have to adhere to.
I also draw attention to what I think is a slight disconnect. We talked about the proposals for gas CCS. The provisions of the national planning statement relating to large combustion plants states that any new plant must be carbon capture ready, and the company must be sure of the technical feasibility of retrofitting the chosen carbon capture technology. If not, the Infrastructure Planning Commission must refuse planning permission for that plant. I very much doubt if anyone is going to come forward with a large coal plant until such time as CCS has been proven to work; obviously, that is the reason behind the demonstrationsto show that it will work. It is interesting that although the Government were prepared to grant the new plant, for example, at Kingsnorth, with only 20 per cent. of CCS, E.ON pulled back. As a matter of interest, a similar thing happened at Hunterston with DONG Energy, which is an indication of the potential difficulty. It therefore seems that companies will, in the first instance, be unwilling to commit to building new coal plants until they are sure that CCS is coming online. It also seems that there will be a hiatus in new coal plants as a result. Having said that, it is important that we deal with the matter.
Another point that has not been raised is how adding a requirement now could act as a technological drive to develop CCS. Others have made the point that in, for example, the motor industry, it was a requirement for emissions reduction that drove the technology for cleaner engines in motor cars. If companies know that they must have CCS, and will not be allowed plants otherwise, it may work as a driver to push the technology on and get us there quicker than we might otherwise do.
I will support the principle of the ETS. I am also happy enough to support the new clause tabled by the hon. Member for North Southwark and Bermondsey, but I personally prefer new clause 5, which is a more reasonable way to approach the matter and takes into account the science as it develops along the way.

Phil Willis: I do not want to repeat the points that have been quite excellently made by the hon. Member for Angus, and indeed, by my hon. Friend the Member for North Southwark and Bermondsey in tabling the new clause.
The hon. Member for Wealden makes a very valid point about the new clause. There is clearly room for negotiation on that clausehe is absolutely right in that. Not only in this Committee, but across most of the House, there is a commitment to see an ETS scheme of some sort in the Bill, as a clear statement of intent by this Government to carry forward into the future.

Joan Ruddock: The hon. Gentleman says that there is room for negotiation on the new clause, but he and his colleagues tabled it specifically to state that there should be no emissions. He knows, as I do, that the best technology that we anticipate would enable us to reduce emissions to 90 per cent. of what they would be if there was not carbon capture and storage.

Phil Willis: I take the rebuke from the hon. Lady, who is passionately committed to much of what we are trying to do. It is the duty of the Opposition, when we are examining and scrutinising a Bill, to take up positions to allow the Committee to debate the extent to which we are able to legislate. That is what we should be doing. The Government do not always get it right. Neither do the Opposition parties, but we are humble enough to accept that, even if the hon. Lady is not. [Interruption.] We are making huge progress; perhaps the Prime Minister will learn from that exampleor is that too much to ask?
The hon. Member for Wealden makes the point that having a plant running with zero carbon would open up all sorts of different issues. We accept that point and, in view of the comments that the Minister is about to make, we will be happy if new proposals are brought forward on Report.
I wish to address the issue that the hon. Member for Northampton, South, raised. He will expect me to speak on that subject, as it goes to the heart of the matter. This is the first time that I have been a member of the same Committee as him. He seems to be an incredibly reasonable man; I am rather sad to see him in the climate change denial group.

Brian Binley: I am not a denier. I am simply saying that we need to be as sure as we can be before we proceed to lock in such regulations. That is all that I am arguing for. That seems eminently sensible to me.

Peter Atkinson: Order. Before the hon. Member for Harrogate and Knaresborough replies to that intervention, may I say that, now that he has made his position clear, we do not want a debate on climate change at this stage? We have a lot of new clauses to get through in a rather short time. I know that it is tempting to comment on the subject, but I would be grateful if the Committee were to stick more closely to the new clause.

Phil Willis: The whole point of this debate, Mr. Atkinson, is to discuss whether CO2 in the atmosphere creates greater heat and thus a need for the technologies that we are talking about. I am saying to the hon. Member for Northampton, South, that there is absolutely no doubt whatever about the science. CO2 multiplied by heat creates a rise in temperaturefull stop. There is no doubt about it. Every scientist can prove that very simply.

Brian Binley: Will the hon. Gentleman give way again?

Phil Willis: No. I am trying to finish the point.

Brian Binley: You are being very provocative.

Phil Willis: No, I am not. I am a nice chap, really.
There is no doubt about the science. There is no doubt that the sun is a heat source. That, too, is scientifically and absolutely undeniable. If one puts a heat source in with CO2, there will be an increase in heat. What cannot be proved, of course, is what the effect of that heating will be on the earths ecosystems. That is where the modelling comes in. The model from the university of East Anglia, to which the hon. Member for Northampton, South, referred, is but one model, using one data set.

Peter Atkinson: Order. I have to tell the hon. Gentleman that the debate is straying far from the subject. I ask him to return to the new clause; otherwise, I shall have to be a little firmer with him.

Phil Willis: I simply make the point that there is no doubt. We are trying, in new clause 1, to get the Government to admit that it is unacceptable for the Bill to leave Committee without an ETS proposal having been included. Unless there is a clear timetable for Governments to achieve those objectives, the industry will not have security, and nor will we.
The hon. Member for Wealden made a vital point. What would happen if a company built a plant without having a clear direction on emission standards? The idea that, in two, three, five or 10 years, the Government would say to it: Unless you meet the standards, we will close down the plant is nonsense, for the very reasons that he gave about the lights going out. Unless the standards are locked in at the beginning of the system, and companies are given clear direction, we will not achieve our objectives, and that is why new clause 1 must have clear standards for the future.

Joan Ruddock: New clauses 1, 2 and 5 seek to address an issue that I think we all agree is critical: the decarbonisation of the UK power sector. Specifically, they seek to introduce an emissions performance standard to regulate carbon emissions from power stations. If the ultimate goal of the new clauses is to reduce carbon emissions from our fossil fuel power stations by as much, and as quickly, as is feasible, that is an aspiration that we share fully. The Government are absolutely committed to the fight against climate change, through actions both at home and abroad, and I am pleased that that approach has been acknowledged by the Opposition. The Climate Change Act 2008, and the system of five-year carbon budgets, establish a legally binding trajectory towards our UK target to reduce greenhouse gas emissions by at least 80 per cent. by 2050.
The move to a low-carbon electricity system is critical to the delivery of our climate goals and the Governments low-carbon transition plan, which was published last summer and which sets out our overarching strategy. Our approach considers both how we can use energy more efficiently and how our energy is supplied. Emissions from the power sector are already regulated through the emissions trading system, which is at the heart of our domestic and EU efforts to tackle climate change.
We have worked closely with the European Commission and member states to significantly strengthen the scheme from phase 3which starts in 2013onwards. For example, there will now be a centralised EU-wide cap, ensuring a more ambitious, certain and consistent approach across the EU, and in the UK there will be 100 per cent. auctioning of allowances to the power sector, which will ensure that the cost of carbon is better integrated into business decisions. I draw those matters to the Committees attention advisedly, because they are at the core of the strategy and we always have to consider any new proposals, such as the emissions performance standard, in that context. We recognise, however, that the EU emissions trading scheme is not sufficient. We must, in parallel, take action to remove barriers to the development and deployment of low-carbon technologies, namely new nuclear, renewables and clean coal.
As we have said consistently, tackling emissions from coal is a priority. Coal is the fuel with the highest carbon emissions, yet countries across the globe are set to use increasing amounts for electricity generation. That is why we are legislating in the Bill for a new CCS incentive to support four demonstration projects. We have already put in place the most environmentally ambitious package of policy measures for clean coal of any country in the world.
We require any new coal power station to demonstrate the full CCS chaincapture, transport and storageat a commercial scale of around 400 MW of their output; that is a minimum. Requiring that scale of CCS at this stage in the development of the technology is ambitious and goes beyond the scale of most projects planned elsewhere, but we believe that it is feasible. Modelling suggests that the carbon emissions from a demonstration programme of the scale that we are planning would be similar to those from the alternative gas generation that would be displaced.
We will maintain a rolling review of progress as regards CCS technology and, by 2018, will publish a report that considers the case for new regulatory and financial measures to drive the move to clean coal. In our public consultation, a common argument advanced by respondents was that we first need to demonstrate CCS and develop a better understanding of its potential. They were also concerned that the introduction of an EPS now, while uncertainty remains about CCS, would deter investment in new power stations that would form the basis of demonstration plants. That is clearly a very important consideration.
It is also worth noting that an EPS is not the only option for reducing emissions from coal power stations. In our consultation last year, we included other options: a cap on carbon dioxide emissions from individual coal power stations, allowing coal plants to emit up to a specified amount of CO2 each year, over a number of years; and a running hours limit on coal power stations. We also need to remember that we expect coal power plants to retrofit CCS to their full capacity by 2025, with the CCS incentive able to provide support. Such measures will be looked at as part of the rolling review.

Simon Hughes: I may be anticipating something that the Minister is planning to say, but before she sits down will she ensure that she gives the Governments view on the other two matters that were part of the consultationthe cap and the hours limit?

Joan Ruddock: The hon. Gentleman has asked me a lot of questions, which I shall endeavour to answer in due course.
I want to record that, as the hon. Gentleman said, the Committee on Climate Change has also listed in its first report a number of options to ensure that future power generation is low carbon. We do not have the time at the moment to go into the detail of all of them, but possible options includedagain, as the hon. Gentleman mentioneda carbon price floor, which I imagine we shall discuss later, a feed-in tariff and a low-carbon obligation, as well as an emissions performance standard. The hon. Gentleman sought to bring the support of the CCC to his new clause, but the fact is that the CCC has set out a range of options and has not said that an EPS is the one way forward.
Given the possible effects on issues such as security of supply and consumer bills, considering the options carefully will be important before deciding whether to implement any of them. In the same report, the CCC recommended a review in around 2020, which should consider additional regulation of emissions from coal power stations. As I said, it did not suggest that an EPS was the only courseor, indeed, that an EPS should be introduced now.
We have considered the full range of evidence submitted to us, including the CCCs advice, and thought about the risks to investment raised by the introduction of an EPS now. Having put those considerations against the absolute global imperative of demonstrating CCS on a commercial scale as soon as possible, we decided to commit to a review of the regulatory framework for coal power stations by 2018. In line with the CCCs advice, we have also clearly stated our expectation that, with or without CCS, coal power stations will need to reduce their emissions substantially if they are to continue operating in the 2020s.
It is clear that an EPS could be part of our emissions strategy in the future, but implementation now would be premature. That does not mean that we are being idle. We do ask ourselves whether we are doing enough, which question I hope will be answered when we publish, in the spring, the 2050 road map that will set out further pathways to a low-carbon UK.
As we know that the scale and pace of the change needed will test current energy market arrangements, particularly those for the electricity market, we are assessing in parallel the operation of the energy policy and market framework, to ensure that it will deliver the investment necessary for affordable and secure supplies of low-carbon energy. It is too early to say what measures, if any, might be proposed as a result of that work, but we will set out initial findings in this years Budget.
New clause 1 would introduce an emissions performance standard for new coal power stations and defines a pathway that would require emissions to fall to nothing by 2020. The hon. Member for North Southwark and Bermondsey needs to come clean about the consequences of the new clause: no emissions means no new coal. Without new coal power stations, we would not be able to demonstrate CCS, and coal would not be in the mix for the future. A coal power station is a long-term investment. No company would invest if it knew that it would have to close its station down within five years of starting, as would be the effect of the new clause. As I said, no new coal power stations risks no demonstration of CCS in the UK.
That matters for several reasons. First, CCS has the potential to play a critical global role in tackling climate change, and developed countries must take a leadership role in driving the technology forward. Secondly, fossil fuels play a vital role in providing us with secure energy supplies in the UK, and CCS will enable that role to continue. Through the demonstration programme, we will start to establish the expertise and infrastructure needed to enable wider roll-out of CCS as soon as possible. Finally, by acting early, we will open up opportunities for UK businesses in a major future market, sustaining between 30,000 and 60,000 jobs. I must say to the hon. Gentleman that there is no way that new clause 1 could be acceptable.

Alan Whitehead: To what extent are utility companies total emissions across their activities limited under the national allocation plan? To what extent will those companies future investment choices be guided by their overall emission limits, as far as the quantum of emissions is concerned, in order to stay in line with their overall allocations and those that they will presumably have on a title basis under future ETS arrangements?

Joan Ruddock: My hon. Friend, as always, makes an extremely valid point. He is absolutely correct. That is why we must keep reminding ourselves of the centrality of the EU ETS.
Proposed new clauses 2 and 5 envisage the introduction of an emissions performance standard to restrict carbon dioxide emissions from all electricity generation plant. New clause 2 takes a fairly broad-brush, enabling approach, while new clause 5 gives Ministers less discretion over how to proceed and requires a review every three years. Both the proposed new clauses would not only create risks for investment in new coal but could delay or deter investment in new gas generation.
We expect and need significant investment in new gas power stations over the next few years. About 18 GW, about a quarter of current electricity capacity, is expected to close over the next decade as environmental standards for coal and oil power stations become more stringent and some nuclear plants close. We expect this to be replaced by 20 GW of new capacity that is under construction or has planning consent. But the fact that a project has planning consent does not necessarily mean that it will be built. There is a risk that the regulatory uncertainty created by new clauses 2 or 5 would cause investors to delay investment in new power stations that we would otherwise expect to be constructed over the next few years. That would pose risks to the security of our electricity supply.
I was asked a number of questions about the correspondence with the EU and whether we could do what we told the Committee we would do. The letter from the Commission only specifically refers to its view that an emissions limit value in two particular kinds of permit is against EU law; we believe that we can still use our legislation. More broadly, the Committee should recall that member states have the power under the EU treaties to go further than EU environmental legislation if they deem it necessary to protect their own environment.
I was asked why we did not refer to the letter from the Commission. It was because it was just one element of ongoing correspondence and we have not accepted entirely what the Commission has said. We have written again setting out our final policy and we await a response to that. We do not think it is appropriate at this stage for us to be picking a fight with the EU. We are confident in our own legal advice. We need to continue with the programmes that we think are appropriate and until we are told otherwise, we think the Commission may be content with our proposals. If it is not, then it will be a matter for it to take up legally.

Simon Hughes: Will the Minister be kind enough to circulate the remaining correspondence, either in that series or other relevant correspondence, so that we can all see before Report what the position is?

Joan Ruddock: I shall certainly look at that request. As I have indicated, we wrote to the Commission in November setting out our final policy. So far, it has not objected. There is nothing more to circulate at this stage, but the letter included references to our contingency policy and the possibility of an EPS. I think I may have answered most of the other questions.
I want to conclude by saying, once again, how committed the Government are to meeting our climate change goals, including delivering the required decarbonisation of the electricity supply. I do not believe that these new clauses are necessary to further those aims.

Simon Hughes: We are coming near to the end of the first part of todays proceedings. I am grateful to colleagues for their considered and helpful response to this very important debate. It would be unfair, given the number of other new clauses to be discussed during the longer sitting later today, to deal with these new clauses at length. But I should like to confirm that we are aware of the technical points that the hon. Member for Wealden made; they were picked up by my hon. Friend the Member for Harrogate and Knaresborough. If the Bill were to have such a new clauseand we think that it shouldthe point that one cannot get an absolutely perfect, insulated, watertight, 100 per cent. guaranteed system would not be a barrier to having a system that allows for that inevitable escape. So that modification would need to be made.
It also seems important to make sure that, although it is less technical than arguments about the timing of the implementation, the question about having the capacity to increase the power supply from the coal-fired power station sources should be addressed. Those issues will be reflected in our decision about what we do with the new clause at the end of my contribution.

The Chairman adjourned the Committee without Question put (Standing Order No. 88.)

Adjourned till this day at One oclock.